Government blessings on investment a good thing?

Posted by Reading Time: 1 minute

We’ve seen many cases over the years whereby foreign investors have been attracted to making a decision concerning a particular investment by the charms of the local government officials. “You have my full support” being a common statement made by city mayors. Yet, later on in the investments life, we have seen problems arising. The official’s relatives being “positioned” within the company for jobs paying salaries they never do. Or even worse, being placed in positions of authority within the business that they then seek to subvert.

Due diligence on the foreign investors part, also tends to be ignored when “secure” in the fact the investment has the local blessing of the man at the top. But we’ve also seen land deals – provided by the self same mayor – that have gone bad, leaving the investor high and dry. One case close to Shanghai being when an Italian investor was promised land that had a scope of use “pertinent to your business” as said by the mayor. Upon investing, securing and paying for said land, the tax bureau disagreed with the land status. The business couldn’t function and the investor lost his money.

On the other hand, in talking to the likes of Tata in Dalian, the local government has been as good as gold – “an ideal partner” they say.

So whats the real deal out there? Is a local government blessing just that – or a curse?

We’d welcome comments – please chip in.

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